Partnerships

One thing we haven’t talked much about is partnerships which is strange because having an opinion on the matter, I’m not known for keeping silent on anything for which I’ve got an opinion. Heh. In responding to the myriad emails I get on partnerships, my greatest concern is the motivations behind the desire to partner up, particularly as this applies to women -since most of you are women. Sometimes when people say they’re looking for a partner, they mean they’re looking for an investor or a backer, a relationship in which the sought partner would bring in the greater proportion of value because let’s face it, ideas are a dime a pallet. Contractors aren’t and there’s a lot more ideas chasing money than there is money chasing ideas. So, in this context, I mean partnerships consisting of two or more peers joining forces.

The latest from my inbox (reprinted below) seems to indicate an impending divorce. One partner is pulling away with what could be avoidance. An ad hoc exit strategy substituting for a formalized one that should have been in place. Actually, it seems doubtful the partner was really committed in the first place. The other partner feels abandoned and similarly, wants to end the relationship as it exists currently, but doesn’t know how to go about it without losing her friend. Perhaps it’s too late to take John D. Rockefeller’s advice, “A friendship founded on business is a good deal better than a business founded on friendship”. However, the infinitely wise Paul Graham says:

… if you think you can prepare for the worst, I think you’re fooling yourself. The other problem with start ups is that people try to figure out how to divide the money before they even have any. That’s the wrong attitude to go into a venture with since you are looking at years of hard times which you want to enjoy rather than thinking about the payoff. And again, if you think you can alleviate potential problems ahead of time you are kidding yourself. The simple fact is that the more you know about the people you are going into business with the better, and don’t expect to get your fair share out of the venture, just be grateful to be a part of something bigger than yourself.

Below is the email that inspired this post, edited to conceal identities.

We started our business together as an equal partnership. Our background is that we’re really good friends and that we always used to make clothes together. We’ve spent lots and lots of afternoons just sewing and talking (stitch n’ bitch I think is what they call it!) We were both kind of at a crossroads with our careers and I suggested that we start a clothing business together and she was thrilled and from there we’ve gotten this far (not so far really).

We’ve been limping along trying to get our first 4 pieces made… from finding fabric sources to finding a pattern maker, etc… And it’s pretty much been ME directing each step of the way. We attended a trade show and she completely disappointed me during that trip because she spent most of the time hanging out with her friends. She took zero initiative as far as attending seminars, networking, or even walking the show. When we got home she said she felt like going to the show wasn’t the right place for us and that she didn’t like it. This infuriated me because she put nothing into it, which is why she got nothing out of it. All that said, I’m ready to end the partnership now. I figure it’s better to end it now rather than wait another 6 months or a year because I know she’s not going to change (people never do). I love her to death as a friend but I will want to kill her soon enough as a partner.

I haven’t told her how I feel. I would like to propose to her that we end the equal partnership and that she still be involved in the capacity of a designer. In the long run I don’t feel like I need her as a designer, I feel like we’re equally skilled in that department, but I do want her to stay involved because I guess it’s the “warm fuzzy feeling” factor. It would be nice if we could still be “partners” in some capacity, not just to completely break it off. But I know now that I cannot share the running and building of this business, it’s just not in me.

I was wondering if you would have any input on how this type of arrangement could be set up. Like would she get paid a flat rate for her designs or could she get paid a percentage? So if the business grows and sales are up she’ll end up making more money as well? I understand that someday if the business actually makes money and she is employed as a designer she could be on salary, but in the mean time what would be another option?

My first advice is practical and then I follow it up with philosophical silliness on partnerships in general if anyone’s bored silly enough to read it.

  • Integrity: You have to be honest with your friend and tell her how you feel.

  • Dissolution: Buy her out, err in her favor if you must. Leave no levers!
  • Value: If value of the venture is in question being that you haven’t launched yet and only have concepts, seriously consider abandoning any designs developed during the partnership and move on.
  • Reflection: Spend some time analyzing the reasons you decided to form a partnership with someone who’s skills mirror your own.

I know it’s hard to do these things. How can you say, I love you but this isn’t working out? You want to keep your friend but you don’t want to keep the business relationship. You already know you have to be honest with her otherwise the business problems will increasingly create distance between you and you’ll end up losing both the business and the personal relationship. Dissolving a marriage partnership is different. While you still may care about them, you rarely want that person to be a continued force in your life.

In general, I’m opposed to partnerships although I know that a lot of you have managed to make them work. I think of partnerships as marriages and with divorce rates exceeding 50%, there’s no reason to think a partnership would end any better particularly when it can be harder to get out of a partnership than a marriage. I suspect that with many DEs who share similar abilities -and this is not a criticism- are motivated through fear, they’re looking for someone with whom to align or buttress themselves from the vagaries of the marketplace. Partnerships can also provide an out, abdication of responsibility, a way of spreading the blame for failure even if it is only to ourselves, in the event things don’t work out. I think it’s better to partner up on projects, call it dating, limiting your involvement with each other on a test project to see how it goes. Another reason entrepreneurs seek partnerships is pain avoidance. We want someone to cover the bases of things we don’t like to do. I’m guilty enough of that. With respect to my own experience, I think it’s better to hire that out if partnering isn’t an option.

Several years ago I’d heard a provocative interview with a woman who’d written a book about prenuptial agreements. She thought that more couples should get them, not as a hedge in case things went south, but as a detailed realistic examination of the parties expectations of the relationship, who was responsible for what, the divvying up of duties and their responsibilities to each other. She saw prenuptial agreements as a way of clearing the haze of idealistic Happy Ever After, a sort of premarital counseling. Business partnerships should be no different I’d think. Have a plan of succession if a partner wants out or is wanted out.

Before closing this post, I spoke to a friend of mine who has a successful partnership. Originally, there were four of them (only two remaining) so I asked him how he managed the transition. First he says that they developed an exit strategy as part and parcel of forming their venture and had it drawn up legally. Two partners left over time, one wanted to spend more time with her young children and the other had a husband who’s business took off and needed her to help him. He said this was handled very straightforwardly, the exit conditions having been clearly established. Secondly, regarding the decision to partner, they’d all worked together in other enterprises previously so they were well aware of the skills and abilities each would bring to the partnership. With regard to conflicts, specifically resentments one partner may harbor towards another over not putting forth the same effort, he said that you have to guard against the mentality of thinking that others are not putting in as much as you think you are putting in. You can’t look at it from the perspective that you (for example) are the one doing the profit generating portion of the work if your partner is doing the portion of the work that frees you up to concentrate on generating revenues.

I have another friend though who says (his partnership is also “successful”) that if he could do it all over again, he’d have done whatever it took to do it solo. Even if that meant working out of his basement and hitting customers door to door. Once you pull in a partner, you’re not the one making all of the decisions and a partner could put the brakes on projects you think are worthy of doing.

The statistics for business survival for partnerships is better than that of sole proprietorships. Still, I wonder how many of those partnerships really became sole proprietorships once the thing was launched and stable. Maybe it’s just where I’m coming from but I’ve heard lots of ugly stories, the worst being that one of the partners takes the intellectual property of the other (developed after they split up) and beats the first partner, having privileged information regarding resources and contacts. What say you? What have your experiences been?

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